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Another year, another Chinese-Indian ‘memorandum of understanding’ on energy agreed this week. The two nations previously penned an agreement on upstream exploration and pipelines in 2006. Neither side took it seriously. Discrete blocs in Sudan, Iran, Ecuador and Syria were the only assets put on the collective table, China had far bigger fish to fry (and buy) elsewhere. So you’d be forgiven for thinking the latest copy/paste ‘Memorandum for Enhancing Cooperation in the Field of Oil and Natural Gas’ will be another non-starter between India’s ONGC and China’s CNPC, but ‘fundamentals’ suggest otherwise. This one might actually have some significance.

In blunt terms, China is now so far ahead in the energy race it can cut Asian nations some slack. Beijing’s purchase of energy assets dropped from $23.4bn in 2010 to $16.3bn in 2011 – in part that’s because Chinese majors are already servicing and developing the contracts they have, but Beijing also wants to take time out on the unconventional scene to see how things develop. Cost inflation and price uncertainty have put the brakes on acquisitions – Sinopec might take a serious look at US Chesapeake assets at fire sale prices, but PetroChina has already turned down Aubrey McLendon’s overtures to help out of a deep seated shale hole. The Hong Kong listed company also walked away from a $2.9bn deal with Encana (Canada) and faces serious cost overruns to develop Australian unconventional plays that could round up to $36bn. East African offshore finds have attracted little Chinese interest, nor have recent bidding rounds in the Gulf of Mexico – all of which suggests Beijing isn’t going to keep playing an unconventional fool if the economics don’t stack up. China will pick and choose the assets it wants.

That’s already created bidding space for Asian rivals to enhance global acquisitions. Japan, Malaysia and South Korea have got their cheque books out to enhance ‘security of supply’, but India remains the key suitor to watch. Although Delhi has wisely scrapped its $280bn sovereign fund idea to increase international acreage, bureaucrats are well aware they need to give national champions far more room for manoeuvre. ONGC is eyeing $5bn stakes from ConocoPhillips in Canada, following in GAIL’s footsteps that sunk $1bn into US and Canadian plays, alongside RIL’s $1.3bn stake in Pioneer Natural Resources. If nothing else, access to international reserves and markets comes as welcome respite from Indian domestic oil price regimes.

Obviously the acid test for any prospective ‘Chindia’ alliance will only come under serious scrutiny once China gets back into the market. Most think we’ll see a 2000s re-run when Beijing gazumped India in Nigeria, Angola, Ecuador, Uganda, Kazakhstan and even Burma, but China’s not just a far cannier investor these days, it has two serious strategic questions to ponder – both of which lean towards giving India a greater stake in the Asian energy game.

The first is that Beijing’s import dependency will hit 70% in the next few years, while India hurtles towards 90%. If the two nations work together, they stand a good chance of turning an historic ‘Asian premium’ for energy prices into an ‘Asian discount’ given traditional producers will find it hard to sell hydrocarbons into maxed out OECD demand, not to mention a supposed surfeit of US production. Asia will be the first and last port of call for energy heavyweights to sell their wares. But work apart, and that narrative could rapidly become an ugly price war between Beijing and Delhi, unless both sides are deadly serious about common rules, pricing, trading and joint bids in the third countries.

Extracting oil from Sudan via newly built Kenya pipelines would be a good pet project to start on, but the global scale should be far larger. Chindia actually needs a common approach to core energy suppliers across the entire Pacific Basin to make sure it remains a consumer driven market. That principally means in the Middle East, not just with fringe players such as an imploding Syria or a nuclear vexed Iran, but with the Gulf States providing the vast bulk of Asian external supplies. China sources over 2.7mb/d from the Middle East, closely followed by India’s 2.2mb/d – a common Asian approach towards the Gulf makes imminent sense, both on a commercial and security basis.

Central Asia is no different. India desperately needs to orchestrate pipeline plans of some sort, be it from Turkmen gas or Iranian oil, not to mention Burmese supplies given Delhi’s awkward position on the map. Give India a greater stake in the Central / West Asian game, and mutual pricing pressures could then be made to tell on Russian oil and prospective LNG supplies. That’s particularly true if Chinese or Indian firms sink large capital investments into East Siberian fields for vertical integration. Further ‘South’, India could play an important role to make sure Australian unconventional plays remain commercially viable with China, a strategy that would see Canberra become the world’s largest LNG producer by 2020. Chindia would have access to so much gas it would barely know what to do with the stuff – save for driving down prices across the region (and beyond).

Corresponding assets in the Americas (North and South) wouldn’t require nearly as much co-ordination to make sure ONGC and PetroChina retain vestiges of independent corporate strategy. Nor would they on North or West Africa plays, but if China doesn’t cut India some slack to bring it under its ‘Pacific wing’, Delhi could become a real distraction for Beijing, dragging them into perpetual dog fights over the same assets. This directly ties into China’s second strategic question: maritime security to secure seaborne hydrocarbon traffic.

China and India both have toes dipped into the Gulf of Aden with all the signs of a naval race developing for strategic control of the Indian Ocean. Rather than jostling for strategic ascendancy in their own waters, the broader issue for Beijing and Delhi to consider is enhanced US focus on the Asia-Pacific region. Instead of being ‘maritime grit’ for China to wash out as a US proxy, India could become the prettiest jewel in Beijing’s String of Pearls, running from the Gulf of Aden, to the Malacca Straits and onto the Chinese mainland.

No doubt this will all sound a difficult prospect for India to entertain; but having put an energy pact on the table, it really is time for Delhi to bury any rivalries, petty border disputes and South China Sea spats with its Northern neighbour, and focus on the one thing it needs to fulfil its growth potential: energy. That’s where the truly serious international relations and political affairs rest.

India has to accept that it’s the junior Asian partner with a far weaker hand to play than China, but that’s not to say that Delhi should be feeble. If anything, a more assertive acquisitions policy with free flowing money is exactly what India needs to display if it wants China to take them seriously once structural import dependency hits. Put more ‘Chi’ style business into India’s ‘Chindia’ policy, and Beijing might be willing to spin off some of their less desirable assets to Delhi to sweeten the pill. At the very least, they’ll be more amenable to sharing some of the spoils (and stress) from high risk markets.

Anything short of this and it’s going to be a simple game of divide and rule for traditional producers. Both Asian consumers will lose out, but India is the one that will lose most. If Delhi understands the underlying facts and starts playing by Beijing’s rules, then a Chindia energy pact could reshape global demand side dynamics – not to mention giving cohesive form to consumer side of the BRICs vehicle as a counterweight to the IEA.

If not, then not. The latest memorandum will prove to be another worthless piece of paper. But if Delhi doesn't start sorting out its energy provision, such analysis is unlikely to apply to India’s pending Presidential ballot boxes. Like it or not, the easiest road to India energy riches runs straight through Beijing: High time for a Chindia pact to have operational punch.